Hang on! Here come credit-card bills

0 Comments | Deseret News (Salt Lake City), Jan 1, 2004 | by Jenifer K. Nii Deseret Morning News

Between the thrill of the 2003 holiday season and the hopeful anticipation of the new year, there are consequences. In the next few weeks, Utahns will start having to make payments on those consequences.

In a perfect world, people would pay for their holiday gifts and other end-of-year expenses without going into debt, said Scott Bilker, creator of the Debtsmart.com Web site and author of several books about managing debt. But while cash may be king in an ideal world, recent data indicate people are more frequently opting for credit cards.

Between Nov. 17 and Dec. 26, Americans put $88.4 billion on credit cards, according to Cardweb.com, an online credit card industry watcher. Overall, the firm reported, holiday retail spending on payment cards is expected to be about 7 percent above last year.

"Everyone forgot about their credit cards during the holiday season, and now it's time to pay," Bilker said. "You want to handle your holiday debt like any other debt. People talk about good debt and bad debt, and there's no such thing. There's just debt, and it has a cost."

There is a multitude of debt management strategies, Bilker said, but the bottom line is simple: Plan ahead and avoid getting into debt. If you can't, pay down debt wisely and quickly.

Wisdom points to paying down high-interest debts first, negotiating (where possible) lower rates on credit cards and taking advantage of lower interest rate options. That may include loans from credit unions or banks.

"You always want to consider all your loan options," Bilker said. "The bottom line is that with any kind of debt or loan, you're buying money. It's going to cost you something, so the cheapest one is the one you want to go with."

Many banks and credit unions offer "Christmas Club" accounts, which are savings accounts customers contribute to throughout the year for use during the holidays.

Brenda Van Hoorn, president of Salt Lake-based P&S Credit Union, said Christmas Club accounts at P&S have increased by 30 percent during the past 12 months. At the same time, the credit union has seen its Christmas loans reduced by about half and reported a drop in credit card balances.

"Most of our members are blue-collar workers," Van Hoorn said. "They're from several union groups or in the construction trades. Their work has been significantly reduced these last few years. So maybe they didn't spend as much this year as they have in the past, which may explain in part the reduction of loans. But also, I think that more people are trying to put money away in savings."

For the credit union's 2,200 accounts, about 100 have Christmas Club accounts, Van Hoorn said. Members deposit into the accounts and are paid a dividend on those accounts in the third quarter of the year. In October, the holiday account checks are mailed out. Most are used for gift purchases, Van Hoorn said, but some are opened by homeowners whose homes are paid off and who need the money to pay property taxes in November.

George Crowder, president of Salt Lake-based Pacific Rails Credit Union, said it offers a similar program, though dividends on savings accounts are paid quarterly instead of annually. Last year, about 80 members opened holiday savings accounts, Crowder said.

Interest in holiday accounts "has been on the increase," Crowder said, pointing to the fact that a few years ago, Pacific Rails counted only 13 holiday accounts.

"A lot of people end up with debt right after the new year as a result of holiday spending," he said. "With a shaky economy, we promoted these accounts a lot more last year. The results have been great. Right now, people really appreciate any kind of tool that can help them avoid that debt."

Howard Holt, president and chief executive officer at Brighton Bank, said although Brighton does not offer special "holiday" accounts, it does regularly consult with customers and potential customers about debt management strategies. The bank also offers home equity loans, vehicle equity loans and unsecured loans (to qualifying customers) that often beat credit cards' interest rates.

"We can look at whether a customer or potential customer is getting overloaded and why," Holt said. "We can evaluate their options, which may include debt consolidation through various loans.

"More than that, though, we encourage checking accounts and savings accounts and money market accounts so that people can track their money."

That's one of the main issues common to painfully indebted customers, Holt said: "People get into trouble when they don't know where their money is going."

E-mail: jnii@desnews.com